Inflation Indexed Bonds
Inflation-indexed bonds are often seen in the news. Do you know what exactly it is? Rea
Inflation-indexed bonds.
Did you ever think about saving a part of your income? Probably the first thing which cam
savings account or buying a bond. However year by year there is an overall rise in prices
purchasing power over time. This is due to inflation. Here comes the role of inflation-inde
When the principal amount of a bond is indexed to inflation, it is called an inflation-index
means the principal amount rises or falls with the rate of inflation. Regardless of the am
economy, the investor is guaranteed a continuous return.
How is interest on an Inflation-indexed bond calculated?
● Principal amount – the amount invested.
● Adjusted principal – (Inflation index at a given point of time)/(Inflation index a
principal amount.
● Interest being paid – adjusted principal × coupon rate.
For example:- Let the principal amount of a bond be Rs.100 sold at a coupon rate of 5%.
the case of a fixed deposit investor will receive Rs.5 per year as interest while in an inflat
principal amount will get adjusted to Rs.110. Hence the resulting interest payment will be
the time of redemption, adjusted principal or face, whichever is higher will be paid.
Features of inflation-indexed bonds:
● Coupons will be paid on a half yearly basis. The fixed coupon rate will be paid
● IIBs are issued for 10 years.
● As they are G-secs, eligible for SLR status.
● The main objective is to protect the middle and middle classes’ savings again
● The minimum amount of investment is Rs. 5000 and the maximum limit is Rs
individual investors and Rs. 25 lakh per annum for institutions.
Inflation-indexed bonds were first issued by Massachusetts Bay Company during the Am
inflation’s effects on the price of consumer goods in the colonies during the war.
Inflation-indexed bonds are often seen in the news. Do you know what exactly it is? Rea
Inflation-indexed bonds.
Did you ever think about saving a part of your income? Probably the first thing which cam
savings account or buying a bond. However year by year there is an overall rise in prices
purchasing power over time. This is due to inflation. Here comes the role of inflation-inde
When the principal amount of a bond is indexed to inflation, it is called an inflation-index
means the principal amount rises or falls with the rate of inflation. Regardless of the am
economy, the investor is guaranteed a continuous return.
How is interest on an Inflation-indexed bond calculated?
● Principal amount – the amount invested.
● Adjusted principal – (Inflation index at a given point of time)/(Inflation index a
principal amount.
● Interest being paid – adjusted principal × coupon rate.
For example:- Let the principal amount of a bond be Rs.100 sold at a coupon rate of 5%.
the case of a fixed deposit investor will receive Rs.5 per year as interest while in an inflat
principal amount will get adjusted to Rs.110. Hence the resulting interest payment will be
the time of redemption, adjusted principal or face, whichever is higher will be paid.
Features of inflation-indexed bonds:
● Coupons will be paid on a half yearly basis. The fixed coupon rate will be paid
● IIBs are issued for 10 years.
● As they are G-secs, eligible for SLR status.
● The main objective is to protect the middle and middle classes’ savings again
● The minimum amount of investment is Rs. 5000 and the maximum limit is Rs
individual investors and Rs. 25 lakh per annum for institutions.
Inflation-indexed bonds were first issued by Massachusetts Bay Company during the Am
inflation’s effects on the price of consumer goods in the colonies during the war.
